Cascade Commentary

Bank of England maintains Bank Rate at 0.75% amidst ongoing Brexit uncertainty

March 2019

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet a 2% inflation target, and in a way that helps to sustain growth and employment. All nine members of the MPC voted unanimously to maintain Bank Rate at 0.75% in minutes released following the end of its 20th March 2019 meeting.

Inflation projections from February 2019 were reported to be on track with a weaker near-term outlook that is expected to lead to a small margin of slack opening up during 2019. Thereafter, demand growth is forecast to exceed a “subdued pace of supply growth and excess demand built over the second half of the forecast period”. CPI inflation increased slightly to 1.9% in February, up from 1.8% in January 2019. The largest contributors were rising prices for food, alcohol and tobacco, and across a range of recreational and cultural goods.

The uncertainty surrounding Brexit has continued to cause volatility in asset prices with the data indicating a continued delay to business investments decisions, particularly in manufacturing. In addition, retail sales remain below a long-term average with a slowdown in the demand for furniture and household appliances.

In contrast, some firms that have been able to capitalise upon the provision of Brexit-related planning advice have reported stronger activity. Employment growth has been strong, but the Bank of England reported a softening in the outlook. Despite this softened outlook, the continued tightness in the labour market in the short-term has benefitted employment agencies, who have reported an ability to increase fees helping candidates during corporate restructurings and relocations to continental Europe.

Most projections continue to be based upon a smooth adjustment to a post-Brexit scenario and the MPC reaffirmed that if this is the case, a tightening of monetary policy may be appropriate to return inflation to the long-term 2% target.

The committee indicated that the outlook is dependent upon answers to key issues surrounding: a) the new trading arrangements between the European Union and the United Kingdom; b) whether the transition to them is abrupt or smooth; and c) how households, businesses and financial markets respond to them.

The MPC next meet in May with the minutes to be released 2nd May 2019. We’ll keep you updated with any further progression in the interim period as the Brexit negotiations progress.

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